Forget about Animal House, dorm rooms, and spring break in Cancun. For approximately 11 million enrollees, college means staying a little closer to home and attending community college. For another group of -- ahem -- more mature students, back to school can mean the pursuit of continuing professional and technical education at local institutions of higher learning.
With the launch of the Community College Loan (SM) and Continuing Education Loan (SM) programs, Sallie Mae is leveraging its core competencies -- the financing, marketing, and servicing of student loans -- and its powerful brand into these growing markets.
According to the National Center for Education Statistics, the number of enrollees over age 24 should reach 6.4 million by 2010, representing 36% of all enrollments in degree-granting institutions.
Not only is Sallie Mae growing the lending pie, but there's also a sweet a la mode quality to these new lines in the form of wider margins.
In contrast to federally guaranteed student loans, which are primarily need-based, the loans made under these new programs will be credit-based. Historically, Sallie Mae's private credit loans have earned the company a wider margin than federally guaranteed loans. These are the spreads between interest rates charged and the cost of funds. In addition, around half of these loans have a co-borrower -- an additional level of safety.
Wider margins are welcome news to the firm and its shareholders. Margins have been under pressure in recent years because of consolidation of loans in a low-interest-rate environment and the recently completed transition from a government-sponsored enterprise under which Sallie Mae benefited from an implicit default protection from Uncle Sam when accessing the capital markets.
When firms find the means to diversify organically (as opposed to a potential de-worse-ification through acquisition), improve margins, and all the while stick to their knitting, it bodes well for their shareholders. This is a strong move for Sallie Mae.
Want to read more about Sallie Mae and saving for college? Check out:
- College Savings Center
- You're on Your Own, Kiddos
- Sallie Mae Goes Solo
- Starting Late at College Savings
- Paying for College at the Last Minute